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Prostitution client guilty of tax fraud

Monroe businessman is likely the final target in federal investigation, but state charges could follow.

Gary L Wright
gwright@charlotteobserver.com

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Monroe businessman John Kelso, accused of claiming his payments to a high-priced call-girl service as advertising expenses on corporate income taxes, pleaded guilty Friday to tax fraud.

Kelso, identified as the co-owner and manager of Focus Pools.com Inc., is the third and likely the last “john” that federal authorities will target in the investigation into the multi-million-dollar prostitution ring Sallie Saxon ran from her southeast Charlotte home.

But some of the johns may now face state prostitution charges.

Kelso, 41, who has moved to Virginia, was released on $50,000 bond while awaiting sentencing. He faces up to three years in prison and a fine of up to $250,000.

Kelso, who has agreed as part of his plea bargain to pay more than $18,800 in delinquent taxes, refused to talk to reporters as he left the courthouse.

Defense lawyer Dale Morrison, asked by a reporter if it had been hard for Kelso to plead guilty, replied: “It wasn't difficult. It was what he needed to do.”

Kelso is accused of using the services of Soft Touch Promotions Inc. and SW Associates from 2003 through May 2006. Those were shell companies used to operate the Internet-based escort services, according to court documents.

Prosecutors allege Kelso falsely characterized transactions with Soft Touch and SW Associates as, among other things, advertising expenses on Focus Pool's corporate tax returns.

Those expenses were personal, so the false treatment on the corporate tax return understated Kelso's income in 2004, prosecutors say.

Saxon, who built one of the most sophisticated Internet-based prostitution rings in the country, was sentenced last month to two years in prison.

The call-girl service drew some 1,900 clients and employed hundreds of hookers over the years. Liaisons took place at hotels around SouthPark and uptown. Saxon, who charged up to $700 an hour for her prostitutes, made up to $3 million.

Assistant U.S. Attorney Thomas Cullen wouldn't say whether more johns will be targeted by federal prosecutors.

But during Saxon's sentencing hearing last month, Cullen said the investigation was in its final stages.

The prosecutor also told the judge that few of the johns who paid for Saxon's call girls violated federal law. It is not a federal crime to have sex with a prostitute.

Federal authorities have been targeting only johns who committed tax fraud to hide expenditures or who enticed women to cross state lines to engage in prostitution.

The end of the federal investigation doesn't mean that the johns are off the hook.

Federal authorities are turning over their findings concerning dozens of johns to the Mecklenburg District Attorney's Office. State prosecutors must decide if they will charge the johns with misdemeanor solicitation for prostitution.

The names of hundreds of men appeared on Saxon's client lists. And johns were videotaped entering and exiting hotels and meeting with prostitutes in the lobbies. Telephone wiretaps captured the voices of johns talking with Saxon, making arrangements to meet prostitutes. The wiretaps recorded the callers' phone numbers and the time and duration of the calls.

Mecklenburg Assistant District Attorney Bruce Lillie said he expects to meet with police in the next two weeks to review the federal government's evidence on the prostitution ring.

Lillie said state prosecutors don't have the resources to prosecute hundreds of men on prostitution charges.

“I've agreed to review the evidence they have on a number of people to determine if the DA's office will pursue charges,” Lillie said.

Two other johns have pleaded guilty to federal charges in connection with Saxon's call-girl service. They also are free while awaiting sentencing.

Charlotte businessman James Smith, who pleaded guilty last month to tax fraud, faces up to three years in prison. He too was accused of claiming his payments to the prostitution ring as advertising expenses on his corporate income taxes.

In June, Dr. Kenneth Friedman, a cardiologist who practices near Raleigh, pleaded guilty to conspiring to entice an individual – identified only as “SJ” – to travel from North Carolina to Las Vegas to engage in prostitution. He faces up to five years in prison.

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